Once skeptical, key lawmakers propose new approach to raising alcohol taxes

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The alcohol department at a grocery store Albuquerque, NM in 2022. CREDIT: Adria Malcolm for New Mexico In Depth

Two key state representatives who helped water down an alcohol tax hike last session have introduced legislation to raise taxes on most alcoholic beverages. The proposals from representatives Derrick Lente, D-Sandia, and Micaela Lara Cadena, D-Mesilla, the top lawmakers on the powerful House Taxation and Revenue Committee, could signal growing support among Democratic lawmakers to increase the price of a commodity that kills thousands of New Mexicans each year. But disagreements remain about how to do it, and by how much.

The legislators filed a pair of bills that each offer its own approach but would both effectively tax alcoholic beverages a percentage of their price.

For most alcohol, House Bill 212 would tax wholesalers on the products they sell to retailers — 6% for beer, 9% for wine, and 12% for spirits, with lower rates for alcohol made by small producers.

Alternatively, House Bill 213 would levy the tax on retailers that sell drinks directly to consumers including bars, restaurants, package stores, and groceries, which would be required to pay 2% of their earnings on beer, 3% on wine, and 4% on liquor.

Either of these “ad valorem,” or value, taxes would be a significant departure from current law, in which wholesalers are taxed by the volume of alcohol they sell, ranging from 4¢ for a 12-ounce beer to 7¢ for a 1.5-ounce shot of liquor.

The bills are a turnabout for Lente and Cadena, who played a decisive role in a conference committee last year that cut a proposed alcohol tax hike of 5¢ a drink down to less than a penny, which was later vetoed by Gov. Michelle Lujan Grisham.

Through a spokeswoman for the House Democratic caucus, the lawmakers declined an interview but said their proposals did not signify a change in thinking. “As both Representatives Lente and Cadena have repeatedly made clear, they share concerns about the harmful impacts alcohol can have on our communities and the need to invest in prevention and treatment programs.”

Their proposals will now vie with a bill sponsored by the lawmakers behind last year’s vetoed bill, including Rep. Joanne Ferrary, D-Las Cruces, which would continue taxing alcohol by volume and raise rates on all alcoholic beverages by 25¢ per drink. On Monday, the House Health and Human Services Committee passed that bill on party lines.

It is not uncommon for legislators to merge competing bills into a compromise bill.

The dueling proposals — a value- versus a volume-based tax hike —  would have different impacts, experts say, both on who pays the tax and how it impacts excessive drinking.

Most significantly, a tax calculated as a percent of alcohol’s wholesale or retail price would be largest on the most expensive drinks and smallest on the cheapest ones.

Take a 750ml bottle of Jose Cuervo tequila, which under current law is taxed $1.20 due to its volume, whether it’s a top-shelf $170-bottle of Reserva de la Familia or a $12-bottle of the company’s economy label, Especial Silver. If House Bill 212’s proposed 12% ad valorem tax were applied instead, the tax on the premium tequila would jump to over $20 a bottle — whereas on the budget product it would rise just $0.23, an increase of less than 2¢ per serving.

Similarly, under House Bill 213, a dive bar’s $3-shot would see a tax hike of a nickel, whereas a craft mixologist’s $20 cocktail would be taxed an additional 73¢.

And for the very cheapest drinks, like a $15, four-liter jug of Carlo Rossi wine or an $11, 1.75-liter handle of Popov vodka, the ad valorem taxes Lente and Cadena proposed would cut taxes from their current rates.

The Democratic spokesperson suggested this was by design, noting that representatives Lente and Cadena have repeatedly argued that raising taxes equally for alcohol of all prices “would disproportionately burden the poorest New Mexicans.”

Neither Lente nor Cadena answered New Mexico In Depth’s direct questions about their proposals, so it’s unclear if they intended to reduce taxes on the cheapest alcohol.

Jacking up the price of luxury alcohols might be appealing to lawmakers who want wealthier people to pay more, according to Dr. David Jernigan, a professor at Boston University School of Public Health, but it would limit the tax’s impact on excessive drinking. That’s because groups already consuming inexpensive beverages, including young people, would see negligible changes in prices, he said. Furthermore, taxing expensive beverages more heavily would incentivize drinkers to seek out cheaper, more lightly-taxed drinks rather than reduce their consumption.

And lowering taxes on the very cheapest drinks is, according to Jernigan, “the opposite of what the state needs for its alcohol crisis.”

In contrast, a 25¢-per-drink hike in the state’s existing volume-based tax would apply equally to all types and prices of alcohol, so there’s less impetus for drinkers to shift to cheaper beverages.

According to the Legislative Finance Committee, the volume-based tax increase would not be as regressive as its detractors make it out to be. “Most of the new tax burden created by House Bill 179 will likely be borne by people with higher-than-average incomes,” its analysts reported.

Jernigan, who modeled the 25¢-per-drink tax’s impact on New Mexico, said that’s because the biggest difference in who pays isn’t determined by a person’s income but by how much they drink. He estimated the lowest-income group of moderate drinkers would pay on average $8 a year compared to $12 by the wealthiest group, not much of a jump. Adults who drank excessively would pay much more: an average of $54 per year among the lowest income group and $63 among the wealthiest.

A disadvantage of a volume-based tax, he said, is that as inflation pushes the price of alcohol upward, rates do not adjust with it as they do with a tax based on price. Because of this, New Mexico’s alcohol taxes have lost more than half their value since lawmakers last raised them in 1994.

To address this, Jernigan said lawmakers can require that the tax be indexed to inflation. Ferrary’s bill requires the state to update the rates every three years.

The proposals also differ in how they allocate alcohol tax revenues. Ferrary’s bill would yield $200 million in new revenues, according to the Legislative Finance Committee, which it would direct to a new state fund for alcohol treatment and prevention. Lente and Cadena’s bills would create a similar fund for alcohol and other substances, but would direct far less money to it.

According to the Legislative Finance Committee, House Bill 212 would deposit $35 million annually whereas House Bill 213 would deposit $25 million. And little of that is new revenue — in either case, $20 million would be derived by repealing the local DWI Grant Fund, which for years has distributed alcohol tax revenues to counties to operate programs to prevent drunk driving.

Doña Ana County is one of the largest recipients, receiving about $1 million annually. Ending that funding “would dramatically impact us, but not in a good way,” said Jamie Michael, who directs the county’s Health and Human Services department.

Michael said the county would no longer be able to run probation programs for people convicted of alcohol-related offenses, provide substance use treatment for people without insurance, or teach an eight-week alcohol prevention program to local high school students, among other activities. Cadena, whose House district lies in the county, had not spoken with her department about the cuts, Michael said.

In 2014, the Legislative Finance Committee published a report that criticized the LDWI grant fund for favoring more populous counties rather than those with highest need and for supporting activities that were not backed by scientific evidence of effectiveness. Michael argued the programs have improved since. “They are really long-standing programs really connected to the local community.”

Ferrary, who also represents a district in Doña Ana County, said that eliminating the LDWI Grant Fund was counterproductive to the goal of saving lives. “If there is concern about these programs, there are better ways to improve their effectiveness,” she wrote in a text.

The Alcohol Harms Alleviation coalition, a group of public health advocates, worked with Ferrary to develop her bill. One of the coalition’s volunteer leaders, substance abuse researcher Marlena Lira, said their proposal had been endorsed by 28 organizations including the New Mexico Society of Addiction Medicine, the U.S. Alcohol Policy Alliance, and the New Mexico Tribal Behavioral Health Association.

Mothers Against Drunk Driving’s New Mexico office also endorsed the bill, according to executive director Katrina Latka, after two years of conversations with the sponsors.

As for the proposals from Lente and Cadena, she said her office was still analyzing them. “MADD was not asked for input in crafting this legislation.”

The House Health and Human Services Committee has scheduled to discuss House Bill 213 on Friday morning.

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